Some lenders have issued restrictions regarding the use of credit rescoring by mortgage originators, confusing the service with credit repair schemes. These lenders do not have a clear understanding of the major differences in the two programs and this lack of understanding brings with it the risk of litigation, as these lenders are prohibiting a consumer from the ability to obtain an accurate credit report for their mortgage loan.
There are major differences between credit rescoring and credit repair. First and foremost credit rescoring is a program developed in conjunction with and is processed through the three national credit repositories. The companies that provide rescoring are credit reporting companies as defined by the Fair Credit Reporting Act (FCRA) as “resellers” and have legal obligations to both the creditors and the consumers for the reports that they issue. That includes the reports that contain rescored credit accounts or trade lines, which they issue to the lenders and upon which the lending decisions are based.
The changes on such a report are made via the rescoring process and have been verified twice for their accuracy. The changes are verified once by the reseller providing the rescoring service, and then again by the national credit repository from which the rescored trade line was originally reported. Upon the completion of the second verification, the data in question is changed at the repository level, a new credit report is accessed with new score calculations made with the new data, completing the process. This all happens in about two to three days as the rescoring process puts everything into a rush status by all involved.
In contrast, credit repair firms cannot access the repository data directly, do not have the ability to interface with the bureaus directly. They file disputes via the basic consumer model and are not consumer reporting agencies that can issue a credit report with their information on it. Many credit repair firms do not even operate with their real name, as most of these firms operate in a fashion that is legally questionable. Federal Trade Commission (FTC) personnel have reported that they have never seen a legitimate credit repair firm and the Commission has a long history of actions against them. Several state attorneys general offices have taken actions against credit repair firms also for their questionable tactics.
When lenders mistake these two services and take a position that credit reports that have been rescored do not qualify for underwriting, they have taken a position that may violate the consumers’ rights. Credit rescoring is one of several options provided to consumers who dispute the accuracy of an item(s) on their credit report. The FCRA requires credit reporting agencies, both the national repositories and resellers, to process these disputes, so when a lender puts limitations on a consumer’s ability to obtain a rescore, they are actually inhibiting the consumer’s ability to process a dispute in timely fashion to have accurate data considered for their mortgage loan.
The lender with this position is basically telling the consumer in the mortgage process who is seeking to have an expedited processing of a dispute to correct some incorrect data on their credit report that they can’t have it corrected for that loan application. I have heard from lenders who have taken this path and they are claiming they are trying to protect themselves from consumers “gaming” the system for better rates. When rescored, credit reports have had the accuracy of the data checked twice before changing it, I am not sure who the consumer can “game” the system by requesting accurate data be evaluated.
Looking at the situation from another perspective is that the lender is “gaming” the consumer, trying to deny their access to accurate data and force them into higher interest rates than they would otherwise qualify for if their report was accurate. It appears that an entity is indeed being gamed and it is the system itself; however, it is not the consumer doing the “gaming” and there should be no surprise when a legal action is filed regarding it.
Terry W. Clemans is executive director of the National Credit Reporting Association Inc. (NCRA). He may be reached at (630) 539-1525 or e-mail
[email protected].
